See U.S. Economy Is Doing What Few Others Are: Getting More Productive: Many businesses have been able to do more with less and increase their revenue without passing on higher costs to customers by Matt Grossman of The WSJ. Excerpts:
"So far this year, the quarterly productivity of U.S. workers has grown by at least 2% compared with a year earlier. The three months through Sept. 30 were the fifth straight quarter of such growth. Over the past five years, quarterly year-over-year productivity growth has averaged 2.1%, a sharp improvement from growth over the 10 years prior."
"Productivity surged during the early stages of the pandemic in 2020, at first mostly because many people in low-productivity jobs such as food service got laid off. As the economy reopened in 2021 and 2022, productivity slumped—but still remained above trend. And it reaccelerated last year, continuing to outpace the prepandemic pattern.
Though the trend is consequential it doesn’t come with simple explanations. The figures are adjusted for inflation, which means that greater productivity doesn’t merely reflect higher prices charged for the goods and services workers produce. Statistics don’t measure productivity directly—they only decipher it by measuring output and hours worked"
"Some economists cite the pandemic as the origin of the U.S. productivity boom. Government stimulus sparked a surge of consumer demand, and low interest rates encouraged business investment, while enhanced unemployment benefits made job seekers harder to come by.
"The combination left companies with no choice but to get more done with fewer people on staff—whether that meant turning more to new technology, such as self-serve checkout lanes at supermarkets, or simply forcing office workers to multi-task"
"American workers have achieved much greater productivity gains than their peers in countries that seem similar on the surface, such as Canada, Australia and most EU members."
"Some economists have explained the divergence by turning to a uniquely American phenomenon: a vast pandemic reshuffling that matched workers with new opportunities, giving them a chance to earn more and contribute more.
The staffing crunch forced companies to hire workers into higher-responsibility roles than they otherwise would have, boosting those candidates’ productivity. And the rise of remote work allowed people to search across the whole country for jobs that would suit them best, yielding higher-productivity opportunities."
See The U.S. Needs a Productivity Miracle. It Might Just Get One: Productivity growth holds the key to a better economy and a manageable budget deficit by Aaron Back. Excerpts:
"Preliminary estimates from the Bureau of Labor Statistics show that total nonfarm business sector labor productivity increased 2.0% from a year earlier in the third quarter—the fifth straight quarter of growth at or above 2%. That is significant as the average rate of growth for the five years before the pandemic was 1.6%.
Jeff Schulze, head of economic and market strategy at ClearBridge Investments, argues this productivity jump is thanks to some unique features of the postpandemic labor market. People have switched jobs, locations and even industries at a high rate, meaning workers are now better matched to their roles, he said in an interview. In addition, the “extreme labor market tightness” of the postpandemic period led companies to step up investment in time and labor-saving technologies.
“I believe that workers are just much better matched to their jobs today, and what’s happening is now that they are better matched and they’ve been in their roles for a couple years, you’re seeing a boost in productivity that’s going to continue over the next couple of years. And that’s even before all of the investment in artificial intelligence even comes to fruition,” Schulze said.
“When you look on the horizon with all this investment in AI, it’s not hard to get too excited about a productivity boom that will move us up to 2.5% or even 3%,” he added."
"Strategist Ed Yardeni of Yardeni Research is an advocate of a “roaring ’20s” scenario, whereby he sees rapid growth this decade, driven in part by an AI productivity boom. Due to the volatility of productivity data, he prefers to look at a rolling five-year average of labor productivity growth, which hit an annualized pace of 1.9% in the third quarter of 2024, from a low of just 0.6% in the fourth quarter of 2015. Yardeni believes this could reach 3.5% in the second half of this decade.
“That might sound delusional, but past productivity booms in the late ’50s, the ’60s, and the late ’90s, all peaked at 3.5% to 4%,” he said.
These past booms each had their own drivers, according to Yardeni: The interstate highway buildout and rapid suburbanization of the 1950s, mainframe computers and jet engines in the 1960s and, of course, personal computers and the internet in the 1990s."
See Will AI Help or Hurt Workers? One 26-Year-Old Found an Unexpected Answer: New research shows AI made some workers more productive—but less happy by Justin Lahart of The WSJ. Excerpts:
"To figure out where AI might fit, economists need careful studies of its use in today’s workplace. Toner-Rodgers’s (Aidan Toner-Rodgers, an MIT doctoral student) paper does just that. His work examines the randomized introduction of an AI tool to 1,018 scientists at a materials-science research lab."
"AI tools that have been trained on the structure of existing materials can make the discovery (discovery and creation of new materials) process significantly shorter and less expensive. Scientists specify the characteristics they would like a compound to have and the AI tool generates recipes that the scientists can then evaluate."
"The lab that Toner-Rodgers studied randomly assigned teams of researchers to start using the tool in three waves, starting in May 2022. After Toner-Rodgers approached the lab, it agreed to work with him but didn’t want its identity disclosed.
What Toner-Rodgers found was striking: After the tool was implemented, researchers discovered 44% more materials, their patent filings rose by 39% and there was a 17% increase in new product prototypes. Contrary to concerns that using AI for scientific research might lead to a “streetlight effect”—hitting on the most obvious solutions rather than the best ones—there were more novel compounds than what the scientists discovered before using AI."
"These gains in scientific innovation could lead to gains elsewhere, since new inventions can lead to unexpected developments down the line. The gasoline-powered internal combustion engine was developed to power automobiles, but when used in tractors, it transformed farming. The share of U.S. agricultural employment fell from 20% in 1930 to 6% in 1960, notes Harvard University economist David Deming, but over that period agricultural output grew fourfold."
"the lab’s AI tool was built specifically for materials discovery."
"researchers who were already the most successful at discovering compounds were even more successful with the AI tool, while other scientists didn’t benefit as much. Because an individual’s compensation tends to be tied with their productivity, that augurs for increased income inequality."
"One last thing Toner-Rodgers found about the lab’s AI tool: The scientists didn’t like it all that much, with 82% reporting reduced satisfaction with their work.
While many AI optimists believe the technology will reduce the number of tedious tasks people have to perform, the scientists felt that it took away the part of their jobs—dreaming up new compounds—they enjoyed most. One scientist remarked, “I couldn’t help feeling that much of my education is now worthless.”"
See The American Worker Is Becoming More Productive U.S. workers are getting more done. That’s great for the economy—though not always great for workers by Justin Lahart and Lauren Weber of The WSJ. Excerpts:
"Productivity in the U.S., as measured by how much the average worker gets done in an hour, has been on the rise. That matters because the faster that productivity grows, the faster the economy can grow as well. The success of the U.S. economy, and why it has grown so much compared with other countries over the past century and more, has hinged on its productivity.
Productivity—the total output of the economy divided by hours worked—rose 2% in the third quarter compared with a year earlier, according to the Labor Department. That marked the fifth quarter in a row with an increase of 2% or better. In the five years before the pandemic, there were only two such quarters.
The gains in part reflect massive changes in the U.S. economy since the onset of Covid-19. Companies learned new ways of doing things and adopted new technologies, while an upheaval in the labor market moved workers into more productive jobs.
Another big change in the American labor force—a massive influx of immigration—might also have played a role. Immigrants are often slotted into manual-intensive jobs, which could allow other workers to move up to more highly skilled jobs.
Businesses learned new ways to operate: QR codes instead of paper menus at restaurants, for example, or a videoconference instead of a time-consuming trip out of town. There has also been a big and continuing jump in the number of new businesses getting started.
And workers, for their part, moved themselves into better-paying and higher-skilled jobs. When restaurants, hotels and retailers reopened after briefly shutting down, they struggled to find workers and were more inclined to offer bonuses or promotions. That made it easy for, say, a cashier at a poorly run store to get work at a well-run one—where he might earn more money, have more responsibilities and get more done."
"And it isn’t clear that the move up in productivity growth will last. The figures are both volatile and subject to revision. The wave of job switching after the pandemic hit has run its course. And so far, productivity isn’t experiencing anything like the boom in the 1990s, when the wide-scale adoption of the personal computer and the advent of the internet reshaped the economy.
But at the least, it looks better now than before the pandemic, when economists worried the U.S. was stuck in a low-productivity funk."
"In November, there were a seasonally adjusted 157,678 “high-propensity” new-business applications, those with a high likelihood of turning into businesses with payroll, according to the Census Bureau—nearly 50% above the monthly levels that prevailed before the pandemic.
That is a positive sign for productivity, for two reasons, according to University of Maryland economist John Haltiwanger.
First, when there are new opportunities for innovation, as with cars a hundred years ago or computers in the 1980s and 1990s, new businesses proliferate. Second, new businesses are quicker to adopt new technologies. That can allow them to hire fewer workers to get things done."
"Hybrid-work arrangements might have also helped productivity for white-collar workers by creating a balance between the quiet of home and face-to-face interactions of the office. Hybrid work also appears to improve employee retention, said Stanford University economist Nick Bloom, meaning businesses don’t lose time training new workers."
"It takes time, though, for a successful technology to be used widely enough and effectively enough for it to show up. So while ChatGPT and other GenAI tools are garnering lots of attention, and some businesses are using them, they are probably too new to move the needle on productivity across the economy yet, said Harvard University economist David Deming.
“They haven’t been around long enough, and there hasn’t been enough embedding of them in organizations in ways that change practices,” he said.
But older types of AI technologies could already be making businesses more efficient, Deming said. For example, some AI that can help companies manage inventory predates the pandemic."
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